Farm Incomes May Fall By Only 3.3% in 2012

USDA's latest forecast calls for only a 3.3% drop in net farm income this year.

Despite the worst drought in a generation, net farm incomes are projected to fall only 3.3% this year, according to the USDA's latest farm income forecast.

The government projects that net farm income will fall by $4 billion this year to $114 billion after setting a record last year. The decline would have been much worse were it not for federal and private crop indemnity insurance.

U.S. Secretary of Agriculture Tom Vilsack put a positive spin on the forecast, intimating that the results could have been much worse were it not for the industry's resiliency. "While down slightly from the August forecast, today's estimates for net farm income are the second-highest since the 1970s," Vilsack says.

The USDA in August had projected that net farm income would increase this year by 3.7%. It says its forecast was revised downward because of changes in the projected value of crops and livestock.

USDA projects that the value of production in the entire agricultural sector--including both crops and livestock, along with revenues from services and forestry sales--will increase. The largest gains will be among oil crops and other farm income.

But these solid gains will be more than offset by increased input costs and payments to stakeholders. USDA forecasts that feed expenses will rise by nearly $10 billion this year.

"Despite gains in almost all sources of farm income, large increases in farm expenditures, especially for purchased feed, have more than wiped out those price-led gains to farm income," the USDA reports.

Record farm equity is expected in 2012. Expected growth in farm assets will exceed the expected increase in farm debt. Debt repayment will rise slightly, though it is near a historic low.